Wealthfront sells for $1.4B to UBS

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Badger1754
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Wealthfront sells for $1.4B to UBS

Post by Badger1754 »

Just wanted to flag this announcement: https://blog.wealthfront.com/wealthfront-has-agreed-to-be-acquired-by-ubs/

About four years ago, I posted a thread predicting this would happen. There is no way that independent roboadvisors can ever hit the scale required to give their VCs an adequate return on capital, given the overwhelming advantages held by larger names like Vanguard, Fidelity, Merrill, etc. It looks like Wealthfront threw in the towel. Wealthfront most recently hit $25B AUM, which while an improvement over the $10B they had in 2018, was nowhere close to $245B they needed to get a 30x return on investment at their then-fee levels. Their VCs got a 7x return on investment, which is perfectly respectable (and does put WF in the unicorn category).

As I wrote then:
I am suggesting the chances of Wealthfront remaining a viable, stand-alone roboadvisor is very slim as it assumes either massive increases in fees or in AUM, neither of which is likely. I'd have to wonder who would buy them. All the large brokerage houses are developing their own roboadvisors and I would find it very hard to believe Wealthfront's distinctive IP, for example, their automated risk parity algorithm, is worth however much the VCs would accept as an exit value.
And now we know.. UBS.. Swiss bank dinosaur without its own robocapabilities, decides to buy a robocapability under the watchful eye of their new CEO.
123
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Re: Wealthfront sells for $1.4B to UBS

Post by 123 »

I saw the news at https://www.cnbc.com/2022/01/26/ubs-buy ... ealthfront The risks of all the fintech startups is that they will be acquired and costs/prices will rise. Their whole point is to gather assets and then sell out to a bigger fish for the investors to cash out. And there is usually someone around who will buy them, its often easier to buy customers than it is to attract them on your own.
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drk
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Re: Wealthfront sells for $1.4B to UBS

Post by drk »

I just saw the email and came looking for a thread. No offense, but your prediction was kind of like betting on Alabama to beat Troy State. :wink:
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nisiprius
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Re: Wealthfront sells for $1.4B to UBS

Post by nisiprius »

I think a major risk for retail investors these days is institutional instability.

How do you count the number of major changes Wealthfront has undergone since 2009?

1) KaChing!

2) Wealthfront: pick a master manager and have your portfolio managed by a clone of their strategy

3) Roboadvisor built by techies for techies

4) Burton Malkiel advising nice, sensible portfolios of seven or eight low-cost mostly-Vanguard ETFs

5) Same as 4 with 80% of your portfolio, but the other 20% defaulted into its own controversial Risk Parity fund

6) Direct indexing options

7) Acquisition by UBS

So that's about a mean free time of less than two years between changes.
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tomsense76
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Re: Wealthfront sells for $1.4B to UBS

Post by tomsense76 »

Well summarized nisiprius :sharebeer

TBH this seems like the best outcome for this company. They seem to have struggled to find and define their niche. Selling out to a larger player seems like the right move for them.

It will also be instructive for us to see how a fintech acquisition goes :happy
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km91
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Re: Wealthfront sells for $1.4B to UBS

Post by km91 »

nisiprius wrote: Wed Jan 26, 2022 2:41 pm
5) Same as 4 with 80% of your portfolio, but the other 20% defaulted into its own controversial Risk Parity fund
What's the deal with this one? I'm not familiar with Wealthfront's offerings but saw the abysmal risk/returns of this fund popping up a couple times on Twitter this morning. This is a leveraged fund they were defaulting users into?
randomguy
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Re: Wealthfront sells for $1.4B to UBS

Post by randomguy »

drk wrote: Wed Jan 26, 2022 1:57 pm I just saw the email and came looking for a thread. No offense, but your prediction was kind of like betting on Alabama to beat Troy State. :wink:
Realistically isn't this the safe bet with just about any tech company? How many of them have google, uber, meta, apple and so on sucked up over the past decade?

So who is buying betterment?
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Re: Wealthfront sells for $1.4B to UBS

Post by jungli »

Badger1754 wrote: Wed Jan 26, 2022 12:23 pm Just wanted to flag this announcement: https://blog.wealthfront.com/wealthfront-has-agreed-to-be-acquired-by-ubs/

About four years ago, I posted a thread predicting this would happen. There is no way that independent roboadvisors can ever hit the scale required to give their VCs an adequate return on capital, given the overwhelming advantages held by larger names like Vanguard, Fidelity, Merrill, etc. It looks like Wealthfront threw in the towel. Wealthfront most recently hit $25B AUM, which while an improvement over the $10B they had in 2018, was nowhere close to $245B they needed to get a 30x return on investment at their then-fee levels. Their VCs got a 7x return on investment, which is perfectly respectable (and does put WF in the unicorn category).

As I wrote then:
I am suggesting the chances of Wealthfront remaining a viable, stand-alone roboadvisor is very slim as it assumes either massive increases in fees or in AUM, neither of which is likely. I'd have to wonder who would buy them. All the large brokerage houses are developing their own roboadvisors and I would find it very hard to believe Wealthfront's distinctive IP, for example, their automated risk parity algorithm, is worth however much the VCs would accept as an exit value.
And now we know.. UBS.. Swiss bank dinosaur without its own robocapabilities, decides to buy a robocapability under the watchful eye of their new CEO.
Spot on! Roboadvisors turned out to be a not-so-great business.

The product doesn’t work very well for people past a certain age, or past a certain amount of money. There’s too many nuances to handle (eg, I might buy a house in the next 10 years, how should I allocate my money?). So it forced wealthfront to focus on younger investors. But even if a company acquires a 100% of the AUM for people under the age of 30, that’s a paltry amount of the total assets - older folks have more money saved up!

They had a niche amongst young techies who would prefer not to think about their money, but also want it to grow. But it's not a big enough niche. And as those folks got older, they graduated to using RIAs. I saw this with many people I know.

There’s no meaningful product differentiation between the various robo advisors. And all of them had raised venture rounds with large ad budgets! So their customer acquisition costs were super high.

And like you noted, since there’s no product differentiation, incumbents had a big distribution advantage. So the writing was on the wall as soon as Schwab and Vanguard launched their own robo advisors.

Mind you, calling a >1bn exit a not so great business is rich on my part, but fintech multiples are really high right now! Not a huge exit from that POV.
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Re: Wealthfront sells for $1.4B to UBS

Post by BackToSchoolDad »

Unrelated to some extent, but do people predict a buyout for M1 Finance eventually?
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anon_investor
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Re: Wealthfront sells for $1.4B to UBS

Post by anon_investor »

BackToSchoolDad wrote: Wed Jan 26, 2022 8:31 pm Unrelated to some extent, but do people predict a buyout for M1 Finance eventually?
I was wondering the same thing. I bet it gets bought by a big bank that charges an AUM to use it like the other robo advisors.
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Re: Wealthfront sells for $1.4B to UBS

Post by MrBeaver »

:beer

Does this mean UBS will be modernizing and allow stop loss orders within my employer-mandated UBS ESPP account, and reduce their commission fees?

(They did reduce their commission from $20 to $5 about two years ago)
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Re: Wealthfront sells for $1.4B to UBS

Post by BackToSchoolDad »

anon_investor wrote: Wed Jan 26, 2022 9:53 pm I was wondering the same thing. I bet it gets bought by a big bank that charges an AUM to use it like the other robo advisors.
If it happens, I hope it's Schwab, since they already bought the other brokerage I use. That'd let me consolidate my accounts with no effort on my part.

I'd make the switch to Schwab now if they offered fractional ETF shares.
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Re: Wealthfront sells for $1.4B to UBS

Post by MBB_Boy »

jungli wrote: Wed Jan 26, 2022 2:56 pm
Badger1754 wrote: Wed Jan 26, 2022 12:23 pm Just wanted to flag this announcement: https://blog.wealthfront.com/wealthfront-has-agreed-to-be-acquired-by-ubs/

About four years ago, I posted a thread predicting this would happen. There is no way that independent roboadvisors can ever hit the scale required to give their VCs an adequate return on capital, given the overwhelming advantages held by larger names like Vanguard, Fidelity, Merrill, etc. It looks like Wealthfront threw in the towel. Wealthfront most recently hit $25B AUM, which while an improvement over the $10B they had in 2018, was nowhere close to $245B they needed to get a 30x return on investment at their then-fee levels. Their VCs got a 7x return on investment, which is perfectly respectable (and does put WF in the unicorn category).

As I wrote then:
I am suggesting the chances of Wealthfront remaining a viable, stand-alone roboadvisor is very slim as it assumes either massive increases in fees or in AUM, neither of which is likely. I'd have to wonder who would buy them. All the large brokerage houses are developing their own roboadvisors and I would find it very hard to believe Wealthfront's distinctive IP, for example, their automated risk parity algorithm, is worth however much the VCs would accept as an exit value.
And now we know.. UBS.. Swiss bank dinosaur without its own robocapabilities, decides to buy a robocapability under the watchful eye of their new CEO.
Spot on! Roboadvisors turned out to be a not-so-great business.

The product doesn’t work very well for people past a certain age, or past a certain amount of money. There’s too many nuances to handle (eg, I might buy a house in the next 10 years, how should I allocate my money?). So it forced wealthfront to focus on younger investors. But even if a company acquires a 100% of the AUM for people under the age of 30, that’s a paltry amount of the total assets - older folks have more money saved up!

They had a niche amongst young techies who would prefer not to think about their money, but also want it to grow. But it's not a big enough niche. And as those folks got older, they graduated to using RIAs. I saw this with many people I know.

There’s no meaningful product differentiation between the various robo advisors. And all of them had raised venture rounds with large ad budgets! So their customer acquisition costs were super high.

And like you noted, since there’s no product differentiation, incumbents had a big distribution advantage. So the writing was on the wall as soon as Schwab and Vanguard launched their own robo advisors.

Mind you, calling a >1bn exit a not so great business is rich on my part, but fintech multiples are really high right now! Not a huge exit from that POV.
The fun part is that they first hit a $1B valuation in October 2020. So selling for $1.4B a year and a half after the greatest retail investing boom in history is......not great. If they couldn't grow in that time period, they never will
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Re: Wealthfront sells for $1.4B to UBS

Post by SlowMovingInvestor »

anon_investor wrote: Wed Jan 26, 2022 9:53 pm
BackToSchoolDad wrote: Wed Jan 26, 2022 8:31 pm Unrelated to some extent, but do people predict a buyout for M1 Finance eventually?
I was wondering the same thing. I bet it gets bought by a big bank that charges an AUM to use it like the other robo advisors.
M1finance isn't exactly a roboadvisor, although it does offer standard pies. But I agree with your larger point about a likely buyout.

Hmm -- I wonder if M1Finance could do something like setup a pie that follows an active ETF (or set of ETFs). You are still going to be behind the active ETF in trades depending on disclosure frequency, but they could advertise -- follow ARKK without the fees :happy
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Re: Wealthfront sells for $1.4B to UBS

Post by anon_investor »

SlowMovingInvestor wrote: Thu Jan 27, 2022 8:33 am
anon_investor wrote: Wed Jan 26, 2022 9:53 pm
BackToSchoolDad wrote: Wed Jan 26, 2022 8:31 pm Unrelated to some extent, but do people predict a buyout for M1 Finance eventually?
I was wondering the same thing. I bet it gets bought by a big bank that charges an AUM to use it like the other robo advisors.
M1finance isn't exactly a roboadvisor, although it does offer standard pies. But I agree with your larger point about a likely buyout.

Hmm -- I wonder if M1Finance could do something like setup a pie that follows an active ETF (or set of ETFs). You are still going to be behind the active ETF in trades depending on disclosure frequency, but they could advertise -- follow ARKK without the fees :happy
This is what I see M1 Finance is acquired by a larger company (maybe a Schwab or a big bank like Citi, etc.), and they start to charge some kind of AUM, 0.5% or something and implement some kind of tax loss harvesting ability to differentiate them from their competition.
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Re: Wealthfront sells for $1.4B to UBS

Post by av111 »

Why would they sell and not ipo? Were they bleeding money?
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SlowMovingInvestor
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Re: Wealthfront sells for $1.4B to UBS

Post by SlowMovingInvestor »

av111 wrote: Thu Jan 27, 2022 8:46 am Why would they sell and not ipo? Were they bleeding money?
Clearly not bleeding money, otherwise they would have gone public :twisted:
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Re: Wealthfront sells for $1.4B to UBS

Post by jungli »

SlowMovingInvestor wrote: Thu Jan 27, 2022 9:54 am
av111 wrote: Thu Jan 27, 2022 8:46 am Why would they sell and not ipo? Were they bleeding money?
Clearly not bleeding money, otherwise they would have gone public :twisted:
Yeah at 27bn in AUM, they were probably making circa $60mm in fees per year.

They had ~250 employees, most of whom were (expensive!) engineers and data scientists. At an avg. total cost per employee of $200k, that's $62mm in costs right there.

Add in the cost to acquire each customer, which is particularly bad if their retention was low.. they probably were bleeding money! Maybe not bleeding a ton of money, but I'm sure they weren't profitable.
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Re: Wealthfront sells for $1.4B to UBS

Post by jungli »

MBB_Boy wrote: Thu Jan 27, 2022 8:18 am
jungli wrote: Wed Jan 26, 2022 2:56 pm
Badger1754 wrote: Wed Jan 26, 2022 12:23 pm Just wanted to flag this announcement: https://blog.wealthfront.com/wealthfront-has-agreed-to-be-acquired-by-ubs/

About four years ago, I posted a thread predicting this would happen. There is no way that independent roboadvisors can ever hit the scale required to give their VCs an adequate return on capital, given the overwhelming advantages held by larger names like Vanguard, Fidelity, Merrill, etc. It looks like Wealthfront threw in the towel. Wealthfront most recently hit $25B AUM, which while an improvement over the $10B they had in 2018, was nowhere close to $245B they needed to get a 30x return on investment at their then-fee levels. Their VCs got a 7x return on investment, which is perfectly respectable (and does put WF in the unicorn category).

As I wrote then:
I am suggesting the chances of Wealthfront remaining a viable, stand-alone roboadvisor is very slim as it assumes either massive increases in fees or in AUM, neither of which is likely. I'd have to wonder who would buy them. All the large brokerage houses are developing their own roboadvisors and I would find it very hard to believe Wealthfront's distinctive IP, for example, their automated risk parity algorithm, is worth however much the VCs would accept as an exit value.
And now we know.. UBS.. Swiss bank dinosaur without its own robocapabilities, decides to buy a robocapability under the watchful eye of their new CEO.
Spot on! Roboadvisors turned out to be a not-so-great business.

The product doesn’t work very well for people past a certain age, or past a certain amount of money. There’s too many nuances to handle (eg, I might buy a house in the next 10 years, how should I allocate my money?). So it forced wealthfront to focus on younger investors. But even if a company acquires a 100% of the AUM for people under the age of 30, that’s a paltry amount of the total assets - older folks have more money saved up!

They had a niche amongst young techies who would prefer not to think about their money, but also want it to grow. But it's not a big enough niche. And as those folks got older, they graduated to using RIAs. I saw this with many people I know.

There’s no meaningful product differentiation between the various robo advisors. And all of them had raised venture rounds with large ad budgets! So their customer acquisition costs were super high.

And like you noted, since there’s no product differentiation, incumbents had a big distribution advantage. So the writing was on the wall as soon as Schwab and Vanguard launched their own robo advisors.

Mind you, calling a >1bn exit a not so great business is rich on my part, but fintech multiples are really high right now! Not a huge exit from that POV.
The fun part is that they first hit a $1B valuation in October 2020. So selling for $1.4B a year and a half after the greatest retail investing boom in history is......not great. If they couldn't grow in that time period, they never will
And all they needed to do was add crypto, memes, and confetti to their app!!! :mrgreen:
Calc_is_Easier
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Re: Wealthfront sells for $1.4B to UBS

Post by Calc_is_Easier »

BackToSchoolDad wrote: Thu Jan 27, 2022 7:44 am
anon_investor wrote: Wed Jan 26, 2022 9:53 pm I was wondering the same thing. I bet it gets bought by a big bank that charges an AUM to use it like the other robo advisors.
If it happens, I hope it's Schwab, since they already bought the other brokerage I use. That'd let me consolidate my accounts with no effort on my part.

I'd make the switch to Schwab now if they offered fractional ETF shares.
Could be coming. They have it set up for the S&P500 stocks. https://www.schwab.com/fractional-shares-stock-slices
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Re: Wealthfront sells for $1.4B to UBS

Post by Auream »

av111
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Re: Wealthfront sells for $1.4B to UBS

Post by av111 »

Auream wrote: Fri Sep 02, 2022 10:12 pm Deal is off: https://www.thinkadvisor.com/2022/09/02 ... 1-4b-deal/
Bummer maybe ubs thinks they can buy cheaper and it is okay to punt on 70mil promised . Hope 2% interest stays though I doubt it
AV111
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